Government Simplifies GST, Merges Slabs to Boost Economy
The Union government has announced major reforms to the Goods and Services Tax (GST), simplifying the structure into two main slabs of 5% and 18%. According to Finance Minister Nirmala Sitharaman, the move will significantly reduce the tax burden on citizens and is expected to lower prices of essential goods. The reform, effective September 22, aims to spur consumption and boost economic activity ahead of the festive season. Items previously taxed at 12% have largely been moved to the 5% bracket.
Unpacked:
Essential goods such as food items, toiletries, kitchenware, bicycles, packaged food, dairy, and plant-based milk are most affected, as they move from the 12% to the 5% GST slab, making them significantly cheaper for consumers.
The reform is expected to reduce government revenue by about ₹1.1 trillion per year (approximately 0.3% of GDP), but analysts consider this manageable due to surplus cess collections and higher Reserve Bank of India dividends.
Yes, luxury and sin goods—such as tobacco products, high-end automobiles, carbonated drinks, and private aircraft—are taxed at a special 40% rate. Some tobacco products will retain their previous rates until further notice.
Businesses will benefit from simplified compliance, pre-filled GST returns, faster refunds, and easier MSME registration. The reform aims to reduce costs, boost consumption, enhance competitiveness, and support economic growth by increasing purchasing power and formalizing the unorganized sector.